Democracy rules... Oops! $700 million is gone!... CME versus MF-ers... The Paper Money Generation... Italy interest up... UniCredit down...
The birthplace of democracy is remaining true to itself... The Greek prime minister has called for a national vote on the country's second economic bailout. Mind you, those voting on the plan are the same people who rioted in the streets when they got fired or had their government benefits cut. I'm not sure why the prime minister didn't just ramrod the plan through and sell it to them in a speech, like we do in the U.S.
But he didn't. Greek Prime Minister George Papandreou has called a referendum on Greek's second European Union bailout. So the Greek people will vote to approve it.
The new plan calls for another 100,000 job cuts over the next three years, plus big cuts to government pensions. A poll taken recently suggested 60% of Greeks didn't want the plan.
The vote hasn't been scheduled, but a Financial Times article said it's expected to take place in January.
Federal regulators discovered MF Global "misplaced" hundreds of millions of dollars in customer funds. The missing money came to light as MF Global tried to sell itself to Interactive Brokers late Sunday night. The acquiring firm was curious where the cash was.
Initially, MF Global couldn't account for nearly $1 billion. That amount has since dropped to $700 million. Maybe a couple hundred million more will appear as the company works through bankruptcy... Regardless, something's amiss. Either MF Global is incompetent – an easy argument, considering the firm levered up 40 to 1 and bet huge on European sovereign debt – or criminal.
The Chicago Mercantile Exchange (CME) – a major derivatives exchange used by MF Global – confirmed the money is not there. And according to CNBC, CME says MF Global isn't in compliance with customer segregation requirements. On Wall Street, you can't mix customer money with company money. If MF Global did this, someone is going to jail.
MF Global's collapse raises two more important points. First, if MF Global "lost" almost $1 billion, what does that say about the stability of the system and the other investment banks?
Second, it highlights the inability of Wall Street "rock stars" to succeed without free-flowing credit. We wrote about this last year, when hedge-fund billionaire Stanley Druckenmiller retired...
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We think you'll see more of this – that is, more hedge funds going out of business – as the global credit bubble deflates. |
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Druckenmiller's career happens to correlate perfectly with the largest inflation in history. As credit multiplied between 1980 and 2010, folks like Druckenmiller were paid unbelievable sums for managing the resulting capital flows. But... the credit spigot has been tightening up, at least for private capital. Now, the only bubble left is the one being blown up by Washington in the form of Treasury obligations. – Porter Stansberry, August 18, 2010, Digest |
MF Global CEO Jon Corzine, who previously served as CEO of Goldman Sachs and governor of New Jersey, made his career exploiting paper money (and the endless amounts of credit paper money makes possible). Perhaps the days of easy money and reckless government spending are ending...
The premium Italy pays to borrow over the rates Germany pays rose to a euro-era high of 454 basis points today. That's greater than the threshold some clearinghouses use to trigger margin payments. In other words, investors who bought Italian debt "on margin" were only required to pay a portion of their obligation up front. As their counterparties perceive the risk increasing, they demand more capital to maintain the trade. Investors holding the bond then face a choice: Shoulder the increased costs or sell... pushing down the market value of Italian debt and exacerbating the crisis.
The spike in spreads happened despite European Central Bank (ECB) President Mario Draghi, who is serving his first day in office, announced the ECB was buying Italian debt. Italian 10-year yields rose 21 basis points to 6.34%.
UniCredit, our Italian bellwether, fell nearly 12% today. Societe Generale, the French banking giant, was down 17%. National Bank of Greece fell nearly 15%.
Jeff Clark just recommended his next triple-digit winner to S&A Short Report readers...
When a stock rallies in the face of bad news, it's incredibly bullish. It means the market has oversold a stock, expecting the bad news... And when the bad news finally arrives, there's no one left to sell.
Jeff just found a company that missed its earnings expectations and lowered its guidance for the year. Normally, a stock would plunge after an announcement like this. But the stock Jeff found rallied. And based on this company's chart, he thinks it will keep going.
Jeff expects his readers to make 110%-147% on his latest trade. If you're looking to add some juice to your portfolio, click here...
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New 52-week highs (as of 10/31/11): None.
Write in to tell us about your best-performing investments these days. Did you sell short the European banks? Did you buy Intel or Wal-Mart or other World Dominator stocks that have risen strongly over the past month or two? Let us know at feedback@stansberryresearch.com.
"I'm not sure if this belongs in this area but I am sure others have the same question. Do you have any suggestions on how to research the companies you recommend? I have ordered Annual Reports, 10Qs, and 10Ks to learn how to read a financial statement/balance sheet but they are voluminous. I was hoping you can suggest a quick way to get to what we should really be looking at. I like some of your old suggestions from 10 years ago and want to research if they are still financially stable companies.
"In the meantime, I am studying such books as Interpretation of Financial Statements, Buffetology, Intelligent Investor, and One Up On Wall Street to learn more. I believe you recommended one of Greenblatt's books that I look forward to reading. Any others suggestions on this subject would be greatly appreciated.
"Keep up the great work. I am not sure why people are always whining in your feedback section. I think what you say is pretty obvious rather than radical. I have about 8 years experience trading options as a pit trader and I currently trade for a large institution. If people think they can find anything better than this then good luck to them. Readers of S&A's work will be on the same level or better than the professionals at the Morgan Stanleys, Goldmans, etc. that I deal with on a daily basis. Ask Doc Eifreg if he disagrees. Thank you." – Paid-up subscriber PJM
Ferris comment: Those are some good books you named...
If you really want to do it right... there are no shortcuts. You have to read all the voluminous stuff you don't seem to want to read. Then, you have to get the scuttlebutt... Talk to competitors and customers and find out what this company is really up to.
But shortcuts? Sorry. You're asking the wrong guy about shortcuts. I looked for them until I was in my 40s... And I wound up taking the long way around because of it.
You want to get rich in the stock market? Defy human nature. Do the work yourself.
"I certainly wasn't insulted by what you wrote [in last Friday's Digest]. I am a (reasonably) new individual investor and it's often sobering when you read, or hear, something that you might not like to read, or hear, but nevertheless it smacks of the truth when you read it/hear it. That's why I said 'ouch.' It was somewhat painful to read because I'd like to think that I can learn as I go along – and end up doing alright at this 'game' – but your article knocked some of the wind out of my sails. Hope this explanation helps and thanks for the 'lessons'. They're very useful." – Paid-up subscriber Barry
Porter comment: My longtime business partner often reminds me that we can't guarantee success in our publishing company... But we can deserve it. The same is true for investors.
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and New York, New York
November 1, 2011